I entitled my 2006 Sir Ronald Trotter Lecture "The Battle of Ideas: Economics and the Struggle for a Better World" for the simple reason that I believe much of the horrific suffering experienced throughout history and in the world today is a consequence of bad ideas. As I have admitted repeatedly I follow the simple line of argument that bad ideas lead to bad policies, and bad policies lead to bad outcomes. I don't say that most bad ideas are accepted because their proponents want the bad outcomes. No, the "badness" judgment results from a critical engagement with the ideas and their experience in action which recognizes unintended and undesirable consequences. Public choice analysis certainly has a major role to play, but in my intellectual framework only after we have exhausted explanations from pure intellectual error (means/ends analysis) a few times first. Socialist and interventionist means are ineffective (or incoherent) with regard to the ends sought (peace, progress and social justice). However, if untold suffering and injustice for the masses and enrichment of few political elites was indeed the desired end, then socialism and interventionism may in fact be effective. I must admit that after the policy experiences of the 20th century with socialism and interventionism and the continuing poverty in Africa and political turmoil and social tensions elsewhere (including the region of the former Soviet Union) I have a hard time understanding why others don't see the causal argument from bad ideas to bad outcomes clearly.

That perhaps mistates my confusion. I am more confused as to the debate over what is a good or bad idea in the realm of economics and public policy. Naomi Klein'sThe Shock Doctrine: The Rise of Disaster Capitalism places blame for most of the world's problems on global capitalism. There are no unintended consequences in her story, bad things happen because bad men want them to. Capitalism unleashes the opportunistic side of humanity and the powerful and the wealthy exploit every advantage to their benefit as the expense of the less fortunate.

In today's NYT Book Review, Joseph Stiglitz reviews Klein's book. He titled his review "Bleakonomics", which may in fact lead readers to believe that Stglitz would chide Klein for her overly pessimistic view of capitalism. However, that would be an error of optimism on the part of the reader. Stiglitz doesn't exactly endorse Klein's analysis, but he repeats without challenging her claim that Milton Friedman shares responsibility for Pinochet's crimes against humanity. Friedman (and Hayek for that matter) had no official advisory role in Chile and it is time that this false charge be dropped. Friedman's account can be found in Two Lucky People (p. 398ff). He went to Chile for 6 days for a series of talks given to representatives of the public, government officials, members of the military, students and faculty. The main topic was the problem of inflation and how to combat it, and only in talks to students and faculty did Friedman depart from the question of monetary policy to address broader themes of economic policy for a free society. He had one meeting where Pinochet was present, and it was conducted through an interpreter and lasted only 45 minutes. Friedman did not design any policies for Chile, nor was he a close advisor to the General. He spoke plain truth about monetary policy and the need to fight inflation, and he talked to students about the dangers of socialism and collectivism and the benefits of a free market economy.*

Why is it so important to maintain the myth that Friedman (and also Hayek, whose involvement with Chile is even less than Friedman's) share responsibility for crimes against humanity in the name of capitalism? And how come it is so difficult to straighten the Naomi Klein's (and for that matter the Joe Stiglitz's) of the world out on the facts. Neither Friedman nor Hayek ever held an official government position of economic adviser to the president or Prime Minister in the US, UK or anywhere else. Joe Stiglitz actually held very high positions of political power in the Clinton administration and at the World Bank.

But lets move to another point. Stiglitz actually argues that Klein understates her critique of free market economics.

Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein makes. They were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets --- for instance, whenever information is imperfect, which is to say always.

This, of course, is vintage Stiglitz**, but it does give the reader the impression that a Nobel Prize winning economists is lending credence to the presentation by a journalist who attempts to demonstrate in no uncertain terms that for the past 50 or more years of public policy history the promotion of capitalism is linked with death, destruction, and deprivation. The only 'solution' is to be found in the empowerment of social democratic institutions of NGOs and civic engagement on economic policies. As Stiglitz argued in Whither Socialism?, he strongly believes that developments in modern economics (largely spearheaded by him) can serve the goals of 19th century socialism better than either Marxist theory or neoclassical market socialist theory. But what if not only Klein gets the historical record wrong, but Stiglitz gets the intellectual history wrong? Two wrongs do not make a right.

* Greg Mankiw discusses the ethics of advising, but in doing so he actually (I would argue) overstates Friedman's involvement with Chilean government. But he does make some solid points to start a discussion on this issue. Murray Rothbard addresses many of the issues raised by Mankiw in his essay "Praxeology, Value Judgments and Public Policy."

** See my Journal of Economic Literaturereview of Stiglitz's Whither Socialism? Also for a modern history of economic thought which challenges Stiglitz's interpretation see my essay "Where Did Economics Go Wrong?" Finally, for a defense of "shock therapy" not on perfect market grounds, but instead on credible commitment and institutional analysis grounds, see my Why Perestrokia Failed and Calculation and Coordination. And for an application and further development of that argument in the context of war reconstruction (as opposed to socialist transition) see Chris Coyne's After War.

The greatest economic mind, and if judged by the quality of his students in Vienna and NY, perhaps the greatest teacher of economics, of the 20th century Ludwig von Mises would have been 126 years old today.

Each year, James Gwartney and Robert Lawson do a fantastic job publishing the Economic Freedom of the World Annual Report. The 2007 vintage has just come out (see here). It is dedicated to Milton Friedman who was, with Michael Walker (the President of the Fraser Institute Foundation), the godfather behind the economic freedom project.

James Gwartney and Michael Walker offer two moving texts in which they share their memories of Milton Friedman. Gwartney reminds us of the exchange between Friedman and General William Westmoreland in 1969 on the elimination of the draft. Friedman famously replied to Westmoreland (who had explained that he did not want to command an army of mercenaries): “General, would you rather command an army of slaves?”

In the report last year, Bill Easterly offered his view of freedom vs. collectivism in foreign aid. This year, Russell Sobel and Peter Leeson have a paper on the spread of global economic freedom based on their working paper “Contagious Capitalism.”

As for the ranking of countries, Hong Kong, Singapore, and New Zealand are still occupying the first three spots.

Much of what I have learned in life, I learned in the context of being around coaches trying to get young men to compete effectively. Here are the most important words of wisdom from the hardwood that I have heard.

"It is not that will to win that is most important, but the will to prepare to win that is." Coach Bobby Knight

"The strong take from the weak, but the smart take from the strong." Coach Pete Carril

"You haven't taught until they have learned." Coach John Wooden

There are obviously many others that can be drawn for other basketball coaches, but also from other sports as well as other human endeavors. What are your favorite quotes that attempt to communicate basic truths and inspire individuals to discovery their competitive advantage?

Tyler Cowen reports on the Coasean bargain that couldn't be struck between President Bush and Saddam Hussein.

I have used this example before in lectures, so I was thrilled to see Tyler's discussion. But when I have used it, it was to highlight a basic puzzle in the political economy of transition. Gordon Tullock argued in reforming the rent-seeking society a transitional gains trap must be overcome. During the 1990s, the Polish economist Jan Winniecki provided a detailed accounting of what it would take to provide the current rent-holders of the Soviet system to take a lump sum payment equal to the present value of their future income stream from their position of power. It was not a small sum, but in many ways it was more cost effective than the efforst of reform that have plagued East and Central Europe and the former Soviet Union since 1989 and 1991.

The post-card for transitional political economy, in my mind, is --- solve the transitional grains trap in a way that consistently addresses the credible commitment problem associated with government restraint through rules.

However, we must also keep in mind that the rational choosers in the real world are human beings who are prone to allow emotions to cloud their judgment; choose among a multiplicity of agenda, some of which may in fact contradict each other; make errors in assessment; and often suffer delusions. As Lin Ostrom once put it, in political econommy we need rational choice models as if the choices were made by humans and not automatons.

The Sunday NYT had a article discussing the use of private security forces in Iraq. What struck me as worthy of investigation is the demonstrated preference that when the US sends high ranking officials the private security forces are used rather than military.

What is the story behind that?

Does anyone know a really good history of the use of private military forces?

Joe Salerno in a review essay on Brian Doherty's Radicals for Capitalism. There are so many interesting parts of Brian's story, but Joe focuses on one aspect of that story and one that happened to rely on some interviews over the years that Brian conducted with me when I was teaching at NYU and at GMU. Joe criticizes my interpretation of the Austrian movement.

I am sure I am guilty of loose lips and also of stating things in an interview less thoughtfully than I hopefully would in an written article, but the context of the discussion between Brian and myself was always one of "how is it that such a powerful set of ideas from Mises and Hayek could have such little impact within the economics profession at large?" I tried to provide arguments which self-reflect on the behavior of Austrian economists themselves, rather to blame others for our failures. I don't deny that there are formidable forces to overcome, but I also think this is a very competitive business and "we" have not competed very well. And I think the evidence is around for us to consider who is competing well or not --- you either publish in professional journals or not; you either get tenure track appointments or not; you either get promoted or not; you either place PhD students or not; you either publish with top publishing houses or not.

It is not that the evidence is murky on this, nor it is really murky that this is the criteria to use in determining whether you are making an impact as a scientific movement in political economy.

Anyway, Joe Salerno --- who I respect tremendously for both the quality of his mind and his deep commitment to Austrian economics --- finds my statements objectionable. There should be a fair hearing of views within Austrian circles, so for those of you who haven't read them check them out. I could indeed be wildly off-the-mark, and if so, perhaps Joe will have a better answer to Brian's question as to why Austrian's have found it so difficult to advance their ideas when in fact on both an empirical (collapse of Keynesianism and collapse of real existing socialism) and theoretical (collapse of macroeconomics, and the development of new institutionalism and resurgency of political economy) level the world of academic economics has moved in such a positive direction.